C.S.P. Singh, J. - (1.) THE petitioner, who was a partner in the firm, M/s. Synfibre Sales Corporation, filed his wealth-tax return for the assessment year 1970-71, disclosing his net wealth at Rs. 2,21,653.58. THE net wealth shown included an amount of Rs. 42,209.26, deposited in current account with M/s. Synfibre Sales Corporation, and an amount of Rs. 4,500, which represented the investment of the petitioner in the firm. THE WTO assessed the petitioner in a net wealth of Rs. 2,38,227. In doing so, he added an amount of Rs. 16,573 to the returned wealth on account of the difference between the value of certain shares as returned and as calculated by him. THE value of the petitioner's interest in the firm of M/s. Synfibre Sales Corporation appears to have been accepted by the WTO. Subsequently, a notice was issued under Section 17 of the Act stating that the WTO had reason to believe that the net wealth of the assessee for the assessment year in question had escaped assessment, and calling upon the assessee to file a return within five days of the receipt of the notice. THE petitioner sent a reply to this notice objecting to the reopening of the assessment and requesting that the material on the basis of which the proceedings under Section 17 of the Act were being started be supplied. It is alleged that no reply was received to this letter, and, subsequently, the present petition was filed challenging the notice under Section 17, and a prayer has been made for the issue of a writ of prohibition, restraining the WTO from taking further proceedings consequent to the notice.
(2.) THE assessment file of the petitioner was produced in court, as there was a dispute as to whether action has been taken under Section 17(1)(a) or Section 17(1)(b) and also in regard to the reasons for initiating the proceedings. We have looked into the file, and it is clear that on November 22, 1974, the WTO, Central Circle III, Meerut, passed two orders stating the reasons for initiating proceedings under Section 17. THE first order purports to have been passed under Section 17(1)(a). THE second order, which has been filed as annex. 1 to the supplementary affidavit filed by Sri S. C. Jain, ITO, Central Circle II, Meerut, does not mention any specific clause of Section 17 and relates to the assessment years 1970-71, 1971-72 and 1972-73. It is necessary to mention here that the order purporting to have been passed under Section 17(1)(a), was not a composite order for all the three years, but the reason has been recorded separately for each year. Considerable argument was advanced before us on the jurisdiction of the WTO to convert the proceedings started under Section 17(1)(a) into proceedings under Section 17(1)(b) and our attention was also drawn to the genuineness of the second order stating the reason for initiating proceedings under Section 17 of the Act. On the view we propose to take, it is not necessary to resolve this controversy. THE order on which the Department relied, and which records the reason for initiating proceedings under Section 17 of the Act, runs as under : " Reasons for initiating action under Section 17 for the assessment years 1970-71, 1971-72 and 1972-73. Name of assessee : THE assessee was a partner in M/s. Synfibre Sales Corporation on the valuation date 21-3-1970/71-72 having 4.5%, 6% 6% shares therein respectively. As a result of enquiries made by me from M/s. Indofil Chemicals Ltd. and Synfibre Sales Corporation, by calling for their relevant balance-sheets, I have come to know that M/s. Synfibre Sales Corporation, amongst others, owned 17,000 shares of M/s. Indofil Chemicals Ltd. which were acquired at cost price of Rs. 13,60,000. THE face value of each share was Rs. 100 and the paid up value of each share was Rs. 80. THEse shares were not quoted at the stock exchanges. THE market value of these shares was thus to be computed in accordance with Rule 1D of the W.T. Rules, 1957. THE market value of such share in accordance with the aforesaid rule was Rs. 97.13 on 31-3-70, Rs. 121.81 on 31-3-71 and Rs. 177.82 on 31-3-72. THE assessee had disclosed his interest in the firm at Rs. 46,709 for A.Y. 1970-71, Rs. 43,159 for A.Y. 1971-72 and Rs. 21,568 for A.Y. 1972-73 only and in the absence of the above information at the time of the making the assessment, the same was accepted to be correct. Thus, the value of interest in the firm, M/s. Synfibre Sales Corporation, was under-assessed to the extent of Rs. 13,104 for A.Y. 1970-71, Rs. 42,647 for A.Y. 1971-72 and Rs. 99,777 for A.Y. 1972-73. Further, the assessee did not file a copy of the firm's balance-sheet, either along with the returns or in the course of the aforesaid assessment proceedings, nor did he disclose the aforesaid facts which have now come to light which were material and necessary for the purpose of correct assessment of the value of the assessee's interest in the firm, M/s. Synfibre Sales Corporation. Thus, in consequence of information which has come into my possession, I have reason to believe that the assessee's wealth, chargeable to tax, had been under-assessed and also that the under-assessment was due to the assessee's omission to disclose fully and truly the aforesaid material facts necessary for assessment of wealth for the above mentioned years. In view of these facts, action is necessary under Section 17 for the A.Ys. 1970-71, 1971-72 and 1972-73. (For information see valuation file of shares with the WTO). Sd. G.N. Srivastava, andnbsp;andnbsp; Wealth-tax Officer, Central Circle, III, Meerut.andnbsp;andnbsp; andnbsp;andnbsp; andnbsp;andnbsp; andnbsp;andnbsp; Dated 22-11-1974." andnbsp;andnbsp; andnbsp;andnbsp; A perusal of this order indicates that the assessment was being reopened on the ground that the value of the shares of M/s. Indofil Chemicals Ltd., which were held by M/s. Synfibre Sales Corporation, was calculated at their cost price, as shown in the firm's book, and not in accordance with Rule 1D of the W.T. Rules. Further, the assessee had not filed copies of firm's balance-sheets along with the returns in the assessment proceedings nor disclosed the fact that M/s. Synfibre Sales Corporation, of which he was a partner, owned 17,000 shares of M/s. Indofil Chemicals Ltd. It was for these reasons that the WTO issued notice under Section 17. There is no dispute that assessment has been reopened on the ground that the value of the shares of M/s. Indofil Chemicals Ltd., if calculated in accordance with Rule 1D, will exceed their cost price, and the excess according to the WTO was Rs. 13,104 for the assessment year 1970-71, Rs; 42,647 for the assessment year 1971-72 and Rs. 99,777 for the assessment year 1972-73. Counsel for the assessee urged that the petitioner had correctly valued his interest in the firm as he had shown his interest in the firm on the basis of the firm's books. It was urged that so far as the valuation of shares is concerned, they are valued at their cost price in accordance with settled principles of valuation and the petitioner having based the valuation of his interest in M/s. Synfibre Sales Corporation on this basis, there is no error in the valuation given by him in respect of his interest in the firm. It was also urged that the WTO never required of the assessee to file the balance-sheets of the firm, and, in any event, the balance-sheet was available with the WTO as he was the same officer who was making assessment of the firm, M/s. Synfibre Sales Corporation. It was also urged that the assessee had disclosed all the primary facts necessary for the assessment, and there was no omission on his part to disclose fully and truly all material facts, as alleged by the WTO, and as such the notice under Section 17 of the Act is invalid.
(3.) SRI R. K. Gulati, appearing on behalf of the Department, has urged that the shares held by M/s Synfibre Sales Corporation in M/s. Indofil Chemicals Ltd. had to be evaluated in accordance with Rule 1D and as the shares had been valued according to the cost price, the returns filed by the assessee, as regards the interest in M/s. Synfibre Sales Corporation, was incorrect, and as a result thereof a part of the net wealth of the assessee had escaped assessment. He also contended that the balance-sheet of the firm was a primary document which should have been filed by the assessee along with his returns, in order that the WTO may be in a position to decide the correct evaluation of the assessee's interest in the firm, and, in the absence of the balance-sheet, the assessee could be said to have failed to disclose all material facts necessary for assessment. The case, according to him, was clearly covered by Section 17(1)(a). In any event, it was argued that it will fall under Section 17(1)(b), for, the WTO came to know of the fact that M/s. Synfibre Sales Corporation owned 17,000 shares in M/s. Indofil Chemicals Ltd., and that these shares were valued at their cost price, and not in accordance with Rule 1D, only on an enquiry made from M/s. Synfibre Sales Corporation, and a perusal of the balance-sheet of these two concerns. Section 17(1)(a) and (b) are in pari materia with Section 34 of the Indian I.T. Act, 1922. Section 17(1)(a) and (b) of the WT Act are in the following terms: " 17. (1) If the Wealth-tax Officer- (a) has reason to believe that by reason of the omission or failure on the part of any person to make a return under Section 14 of his net wealth or the net wealth of any other person in respect of which he is assessable under this Act for any assessment year or to disclose fully and truly all material facts necessary for assessment of his net wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped assessment for that year, whether by reason of under-assessment or assessment at too low a rate or otherwise ; or (b) has, in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or failure as is referred to in Clause (a) that the net wealth chargeable to tax has escaped assessment for any year, whether by. reason of under-assessment or assessment at too low a rate or otherwise; he may, in cases falling under Clause (a) at any time within eight years and in cases falling under Clause (b) at any time within four years of the end of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that sub-section." ;